Bitcoin Plunges Most in 2 Months Amid Stock Market Sell-off

Just one day after crypto and traditional markets soared on Federal Reserve Chairman Jerome Powell’s comment that the U.S. central bank wasn't likely to raise interest rates by more than 50 basis points (0.5 percentage point) at coming meetings, the dynamics of financial markets quickly changed.

Bitcoin (BTC), the largest cryptocurrency by market cap and the most affected by macroeconomic factors, dropped 7.3% Thursday to a 24-hour low of $36,640, according to data from TradingView. That was the lowest price since Feb. 24 and marked the biggest one-day decline since March 4.

“Yesterday's FOMC saw a rate hike alongside more concrete balance sheet contraction talk – things that don't bode well for markets," said Joe DiPasquale, CEO of BitBull Capital, a cryptocurrency fund of hedge funds. FOMC stands for the Federal Open Market Committee, the Fed panel that sets monetary policy.

"Even though there was an initial surge in BTC, it is not isolated from these macroeconomic changes, and today's price action reflects that," DiPasquale said.

"The Nasdaq is down over 5% and central banks are adding value to fiat, especially the dollar," said Bob Iaccino, chief strategist at Path Trading Partners and co-portfolio manager at Stock Think Tank.

Bitcoin’s drop came as the S&P 500 skidded 3.8% and Nasdaq Composite Index lost 4.9%, reflecting the elevated correlation between the two indexes and bitcoin.

Paul Hickey, co-founder of Bespoke Market Intelligence, called Thursday’s market sell-off a “reality check” on CNBC, and Jason Deane, an analyst at Quantum Economics, said it is a "text book capitulation" after Powell on Wednesday shut down rumors that the Fed might raise interest rates by 75 basis points in one of its upcoming meetings. The comments sent stocks and crypto soaring in a relief rally.

But inflation at its fastest pace in four decades remains a nagging concern, and the Fed’s approach to tackle the issue is still hawkish at a time when doubts are growing whether the U.S. central bank can engineer a proverbial "soft landing" – cooling the economy just enough to ease inflationary pressures without causing an outright recession.

The yield on the 10-year U.S. Treasury pushed above 3%, its highest level since 2018, adding to the economic headwinds by increasing borrowing costs for everything from mortgages to corporate loans and commercial real estate.

UPDATE (May 5, 17:08 UTC): Adds additional comments.